Posts Tagged ‘Big 4’
Trial of former partner at KPMG starts today
Image courtesy of Adobe Stock.
One former partner at KPMG and a former PCAOB staffer get their day in court today, February 11, 2019. Actually, it will be about four weeks in court, according to Michael Rapoport of the Wall Street Journal: KPMG Ex-Partner Goes on Trial in ‘Steal the Exam’ Scandal.
David Middendorf was a KPMG partner until April 2017. He was National Managing Partner for Audit Quality and Professional Practice Group, in the Department of Professional Practice (DPP). He reported to the Vice Chair of Audit.
Jeffrey Wada was a PCAOB Inspections Leader from February 2012 through February 2017.
Both are in court today defending themselves against charges they received and leaked, respectively, the list of KPMG audits which were scheduled for inspection by PCAOB.
Update on KPMG gaining access to PCAOB inspection schedule. Possible impact on inspection results.
….what might need improving at KPMG based on PCAOB reports. Image courtesy of Adobe Stock
The PCAOB released results of the inspections during the 2017 cycle. The results are not pretty. In addition, PCAOB released previously confidential comments from the 2015 report.
Michael Rapoport has the details in the Wall Street Journal on January 25, 2019: KPMG Gets Poor Marks From Audit Regulator / Regulator unseals sharp criticism of Big Four accounting firm’s quality during period spanning leak scandal.
In a painful phrase, the article quotes prosecutors as labeling this as a
“steal the exam” scheme.
In the 2016 audit cycle, PCAOB replaced 11 engagements that had already been reviewed with 10 others. Of the 11 replaced, 3 had significant deficiencies. Of the 10 replacements, 9 had deficiencies.
List of key players in KPMG fiasco over leaked PCAOB inspection lists
Three accountants in this story entered the above building innocent and left as a felon. Image courtesy of Adobe Stock.
Sometimes you gotta’ have a scorecard to keep track of the players and the story. After a former partner pled guilty this week in the fiasco at KPMG over leaking of PCAOB inspection targets, I had to sort out again who was who.
So, I sketched out a list of the players and a bit of info about each.
Will update this list as the criminal cases move forward.
The roster of players and their status: Read the rest of this entry »
Recap of indictments for KPMG inspection document fiasco
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For a year we have known of a fiasco at KPMG in which the firm obtained a list of PCAOB’s plans for inspecting KPMG audit workpapers. That information was floated around at the senior levels of the firm. Multiple people were fired.
This week, the Department of Justice unsealed indictments against four former KPMG employees and one former PCAOB employee.
Let’s dive into the details.
Players
Minor updates while we wait for more news on the PCAOB leak to KPMG
Image courtesy of Adobe Stock.
There is little new information on the leak from PCAOB to KPMG since the first reports.
I’m expecting to hear a lot more, most likely after PCAOB and SEC finish their investigation. If I read this situation correctly, and if public reports are correct, there will be sanctions from SEC against some of the KPMG staff. At that point, the SEC public documents will tell us a lot more.
While we wait, here are two articles that give some general background.
4/17/17 – Francine McKenna at re:The Auditors – KPMG takes its turn with a Big 4-sized scandal – If you’ve been looking for an article with a long time horizon to survey the assorted scandals in the Big 4 world, this post will give you the deep background you want.
Leak from PCAOB to KPMG
Post describes the current information that is public on the leak of inspection engagements from someone at PCAOB to someone at KPMG. Article illustrates there still is not a lot visible in the public realm to answer all the questions that come to mind.
Ms. McKenna quotes my comment earlier on the PCAOB-KPMG leak feeling to me like a red flag of something deeper. She agrees with me.
Each firm has their own round of fiascos
All the firms have had their turn of embarrassing publicity, often with fines or undisclosed settlements.
Update on PCAOB leak to KPMG: 6 departed staff at KPMG were fired.
Image courtesy of Adobe Stock.
A minor update on the leak from a now-former PCAOB staffer to a now-former KPMG staffer giving advance notice of audits selected for inspection. Also, many questions come to my mind after thinking about this situation.
Previously mentioned this fiasco yesterday.
CFO.com provides some clarifying info from KPMG’s executive director of media relations and corporate communications: KPMG Replaces Audit Chair in Wake of PCAOB leaks.
The KPMG representative says that KPMG discovered the issue and notified the SEC and PCAOB.
Most significant piece of new information is that the six people who left the firm were fired.
They did not resign.
Why is this significant, at least to me? In the initial reports, I saw verbs used indicating all of the following possibilities for the partner’s departure. They may have:
- resigned (which means sorta’ kinda’ voluntary terminations), or
- were fired (which means the firm unilaterally terminated them), or
- departed (which doesn’t addressed which party made the termination decision; in other words could have been a summary firing, or truly voluntary, or under the proverbial threat of you-can-either-resign-or-I’ll-personally-throw-you-out-the-window).
At first read, I did not analyze which of the above options actually was in play. I put together all the reports I read and assumed (you know what that means) these were all forced resignations, as in “I think it’s time for you to resign.”
Other comments by the PR person confusing me are statements that the fireable offenses were possessing the leaked information or knowing others knew about it.
Another fiasco at KPMG
Image courtesy of Adobe Stock.
There is as much missing from reporting on this story as has already been made public.
Here is what I can figure out:
An employee of PCAOB leaked to someone at KPMG a list of audit engagements that were going to be inspected. Recipient of the leaked info was previously an employee at PCAOB.
Lots of stuff we don’t know happened next.
When someone told senior leadership at KPMG about this back in February, KPMG took several steps. They hired external legal staff to investigate, notified the PCAOB of the leaked info, and then fired 6 people.
Amongst the fired staff are
- two named partners, including the Vice Chair of Audit (who was in charge of all audit work in the US firm) and the national managing partner for audit quality and professional practice
- three other unnamed partners
- one other person, whose job level and responsibilities were not identified.
The leaker at PCAOB has resigned.
What is missing from the reporting?
What happened inside KPMG between the leak and the firings is not visible in the few articles I’ve found on the incident.
